US President Donald Trump has sent mixed-to-bad signals about the future of the North American Free Trade Agreement (NAFTA). (Photo: The White House)

Monday, December 11, 2017

Analysis

Latin America Business: Worst in 2017

The worst news in Latin America business in 2017.

BY LATINVEX EDITORS

The worst events in Latin American business this year, according to Latinvex editors.

#1 Trump Threatens NAFTA

This has been annus horribilis for supporters of the North American Free Trade Agreement (NAFTA) as a result of the mixed-to-bad signals US President Donald Trump has sent over the pact’s future.

Economists at Goldman Sachs expect the Trump Administration to announce its intent to withdraw from NAFTA in the coming months, World Trade Online reported last week.

Last month, U.S. Trade Representative Robert Lighthizer warned that unless Canada and Mexico engage on major U.S. NAFTA demands, the negotiations to modernize the trade deal "will not reach a satisfactory result," Reuters reported.

By that he meant that Mexico and Canada gave in to what experts have deemed as highly unreasonable US demands that render NAFTA meaningless, including a five-year sunset clause and a proposal to require 50 percent of the value of vehicles to be produced in the United States.

The US demands have left Mexican and Canadian officials flabbergasted and increasingly worried that the real US goal is not a renewed NAFTA, but a complete US exit of the trade agreement.

Although leading business groups, including the US Chamber of Commerce, have advocated strongly for NAFTA, the highly unpredictable US president will have the last word.

#2 Oi Telenovela

It has been 18 months since Brazilian telecom carrier Oi filed for a $19 billion bankruptcy protection, but the process is no closer to a solution than it was before the filing.

More than a serious process to salvage Brazil’s third-largest telecom, the Oi bankruptcy process looks like a Brazilian soap opera, with shareholders publicly fighting each other, the CEO resigning and the country’s telecom regulator Anatel shooting down several plans to salvage the company.

Aurelius is leading a group of Oi creditors known as the International Bondholders Committee, which is pushing for a debt restructuring plan opposed by the board.

Meanwhile, Egyptian billionaire Naguib Sawiris has gone back and forth on whether to invest in Oi or not. In the latest announcement, he says he now would consider investing if Brazil’s government takes the “right step,” Bloomberg reports.

“Stakeholders have been fighting and wasting time,” he says. “If the government takes the right step and they need an industrial operator like us we are willing to go there and help.”

Schroeder’s successor, Eurico Teles, is now preparing a plan to the bankruptcy court ahead of a creditor’s meeting next week, according to Bloomberg.

Brazil’s technology minister Gilberto Kassab says there has been progress the past few weeks and sees a solution soon, according to Valor Economico.

#3 Argentine Inflation Continues

Despite the best efforts by Argentina’s well-respected central bank governor Federico Sturzenegger, the South American nation’s inflation rate is still at double-digits and second only to Venezuela in Latin America.

According to the latest central bank poll of economists, inflation expectations rose to 23.5 percent from 23 percent a month earlier, well outside the bank’s 12 percent to 17 percent target range.

Although this year will mark an improvement over last year’s 37 percent rate, it clearly is still higher than many had expected after Mauricio Macri became president two years ago.

The International Monetary Fund projects another three years of double-digit inflation rates, only seeing a single-digit rate of 9.6 percent in 2021.

#4 Peru: Odebrecht Scandal Delays Gas Pipeline

While the investigation of the bribe scheme by Brazilian construction company Odebrecht is seen as one of the greatest achievements in Latin America’s fight against corruption, the subsequent arrests and related actions have also had a negative impact in the region.

The biggest fallout outside of Brazil has taken place in Peru, where practically all major political figures have been implicated as has the well-respected local engineering firm Grana y Montero.

Meanwhile, work on the $5 billion natural gas pipeline project -- Peru's largest infrastructure project ever – was stopped. After the scandal broke last year, Odebrecht planned to sell its stake in the project, but was unsuccessful. In January, the Peruvian government cancelled Odebrecht’s contract after it missed a key financing deadline.

Peru’s government is now planning a new bid for the pipeline next year.

#5 Venezuela Worsens Again

Last month, Standard & Poor's declared Venezuela in default after it missed two interest payments.

Meanwhile, the $30 billion of debt issued by PDVSA may be worthless in a default since its assets exclude oil that belongs to the state, warns Jay Newman, the former hedge fund manager who helped billionaire Paul Singer win a 15-year fight against Argentina, Bloomberg reports.

Venezuela’s economy is expected to decline by 12 percent this year, according to the International Monetary Fund. That will be the world’s worst result, according to IMF projections for 193 countries.

It also follows a 16.5 percent fall last year. In fact, this will be the fourth straight year of recession in the South American country.

And the IMF sees at least five more years of economic declines.

With no improvement insight, virtually all foreign companies have left or stopped operations, while foreign airlines have also abandoned the country.